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Westfield Insurance Co. v. Weaver Cooke Construction, LLC

United States District Court, E.D. North Carolina, Eastern Division

April 11, 2019

WESTFIELD INSURANCE COMPANY, Plaintiff,
v.
WEAVER COOKE CONSTRUCTION, LLC, et al., Defendants.

          ORDER

          W. EARL BRITT SENIOR U.S. DISTRICT JUDGE

         This matter is before the court on three cross-motions for summary judgment: plaintiff Westfield Insurance Company (“Westfield”) and defendant Zurich American Insurance Company's (“Zurich”) motion (DE # 67); defendant Selective Insurance Company of America's (“Selective”) motion (DE # 72); and defendant Weaver Cooke Construction, LLC's (“Weaver Cooke”) motion (DE # 74). The parties have filed responses in opposition and replies. (DE ## 84, 86, 88, 90, 91, 94, 97-100.) The matter is now ripe for adjudication.

         I. BACKGROUND

In 2006, New Bern Riverfront Development, LLC (“New Bern”), as the developer, and Weaver Cooke, as the general contractor, entered into a contract for construction of a condominium complex in New Bern, North Carolina. Weaver Cooke, in turn, entered into subcontracts with others for performance of work required to construct the project. In 2009, New Bern filed suit against Weaver Cooke and others based on allegedly defective construction of the project. New Bern declared bankruptcy, and the case--the Underlying Action--eventually ended up in the bankruptcy court for this district, where it remains pending.
With the exception of Weaver Cooke, the parties involved in the instant action are insurers of parties involved in the Underlying Action. Specifically, Westfield and Zurich issued to Weaver Cooke, as a named insured, commercial general liability policies. Selective issued to William H. Dale d/b/a DD Plumbing Company (“DD Plumbing”), a subcontractor of Weaver Cooke, as a named insured, commercial general liability policies. [Defendant Penn National Insurance Company (“Penn National”)] issued to East Carolina Masonry, Inc., [(“ECM”)], a subcontractor of Weaver Cooke, as a named insured, commercial general liability policies. Westfield and Zurich have been contributing to the costs of Weaver Cooke's defense of the Underlying Action pursuant to a reservation of rights.

(3/1/17 Order, DE # 55, at 1-2.)

         Weaver Cooke entered into a subcontract with DD Plumbing on 4 October 2006, (see DD Plumbing Subcontract (DE # 71-22) Ex. 19 at 2), and a subcontract with ECM on 25 September 2006, (see ECM Subcontract (DE # 71-21) Ex. 18 at 2) [hereinafter “Subcontracts”]. Both Subcontracts require that the

Contractor [Weaver Cooke], its members, managers, officers, directors, agents and employees [] be named as additional insureds on all insurance policies required by this Subcontract with regard to claims and liabilities for. . . property damage arising out of or resulting from (i) Subcontractor's activities under this Subcontract and for which Subcontractor may be legally liable. . . (ii) products and completed operations under this Subcontract. . . . ”

(Id. at 13; DD Plumbing Subcontract (DE # 71-22) Ex. 18 at 12.) Both Subcontracts required additional insured coverage “on a primary and non-contributing basis.” (DD Plumbing Subcontract (DE # 71-22) Ex. 19 at 3; ECM Subcontract (DE # 71-21) Ex. 18 at 3.)

         Following the filing of the Underlying Action by New Bern, on 14 March 2012 Weaver Cooke sent two letters, identical in substance, to DD Plumbing and ECM (the “First Tender Letter”) tendering its defense of the Underlying Action and requesting that the letter be forwarded to the recipient's agent and/or insurance carrier. (Weaver Cooke Tender Letters (DE # 71-31) Ex. 28 at 2, 5.) On 12 September 2013, Westfield sent two subsequent identical letters to Selective and Penn National (the “Second Tender Letter”) tendering the defense in the Underlying Action. (Selective App'x (DE # 80-4) at 1; Penn National Req. for Admis. and Am. Answers (DE # 71-23) Ex. 20 at 85.) Pursuant to the commercial liability policies, Selective and Penn National have defended DD Plumbing and ECM, respectively, in the Underlying Action under a reservation of rights. (Selective App'x (DE # 78-2) Ex. 1.1 at 15; Penn National Resp. Opp'n (DE # 84) at 2.) To date, neither Selective nor Penn National has defended Weaver Cooke as an additional insured.

In this action, Westfield, as the plaintiff, seeks a judgment declaring that its subject policy affords Weaver Cooke no coverage for the claims asserted in the Underlying Action; it has no further duty to defend Weaver Cooke against the claims asserted in the Underlying Action; and, Selective and/or Penn National have the duty to defend Weaver Cooke in the Underlying Action as an additional insured under their policies on a primary and non-contributory basis or, alternatively, on a contributory basis in equal shares with other insurers. It also asserts a claim for equitable subrogation/contribution against Selective and Penn National for defense costs and expenses it has incurred in the Underlying Action or, alternatively, for those costs and expenses it has incurred in the Underlying Action beyond its pro- rata share. Zurich has filed cross-claims against Weaver Cooke and the other insurer-defendants alleging declaratory judgment and equitable subrogation/contribution claims similar to those Westfield alleges.
Weaver Cooke asserts a counterclaim and cross-claims against Westfield and Zurich, respectively, for a declaration that each owes Weaver Cooke a defense and indemnity to the claims in the Underlying Action. It also asserts cross-claims against Selective and Penn National. It alleges that it is an insured or additional insured under their respective policies and that those insurers engaged in prohibited claim settlement practices. Weaver Cooke seeks declaratory and monetary relief.

(3/1/17 Order, DE # 55, at 2-3.)

         On 1 March 2017, the court stayed this action on “[t]he issue of the insurers' duty to indemnify[, ]” while “the issues of the insurer's duty to defend Weaver Cooke (including coverage as an additional insured) and Selective's and Penn National's handling of Weaver Cooke's claim” were allowed to proceed. (Id. at 6.) Following discovery on these issues, the parties filed the instant motions for summary judgment.

         II. STANDARD OF REVIEW

         Summary judgment is appropriate when the record as a whole reveals no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The party seeking summary judgment initially must demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden, the nonmoving party may not rest on the allegations or denials in its pleading, Anderson, 477 U.S. at 248-49, but “must come forward with specific facts showing that there is a genuine issue for trial, ” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis and quotation omitted). A trial court reviewing a motion for summary judgment should determine whether a genuine issue of material fact exists. Anderson, 477 U.S. at 249. In making this determination, the court must view the evidence and the inferences drawn therefrom in the light most favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007). “When faced with cross-motions for summary judgment, the court must review each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (internal quotation marks and citation omitted).

         III. DISCUSSION

         The parties' primary dispute is whether Selective and Penn National owe a duty to defend to Weaver Cooke in the Underlying Action as an additional insured provision under the policies issued to DD Plumbing and ECM. The parties also dispute whether Selective and Penn National violated the North Carolina Insurance Unfair Trade Practices Act (“IUTPA”), N.C. Gen. Stat. § 58-63-15, and the North Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C. Gen. Stat. § 75-1 et. seq.

         A. Standing

         In response to Westfield and Zurich's motion for summary judgment, Selective contends that Westfield and Zurich “lack standing to assert additional insured rights under its insured's subcontract[]” because they are not third-party beneficiaries of either the construction contract or the DD Plumbing subcontract. (Selective Resp. Opp'n (DE # 91) at 9-10.)

In order to maintain an action in federal court, a plaintiff must show that they have standing under federal law. Miller v. Augusta Mut. Ins. Co., 157 [F. App'x] 632, 636 (4th Cir. 2005) (citing Phillips Petrol. Co. v. Shutts, 472 U.S. 797, 804[] (1985)). Under 28 [U.S.C.] § 2201, “[i]n a case of actual controversy within its jurisdiction. . . any court of the United States. . . may declare the rights and other legal relations of any interested party seeking such declaration.” In order to determine if an actual controversy exists between interested parties, courts should consider “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273[] (1941). If a plaintiff's complaint fails to allege facts sufficient to establish standing, the suit must be dismissed. See, e.g., Walker v. S.W.I.F.T. SCRL, 517 F.Supp.2d 801, 808-09 (E.D. Va. 2007).

Steadfast Ins. Co. v. Berkley Nat'l Ins. Co., 217 F.Supp.3d 904, 910-11 (S.D. W.Va. 2016).

         Westfield and Zurich claim that-as a direct result of Selective's and Penn National's decision not to defend Weaver Cooke in the Underlying Action-Westfield and Zurich have incurred substantial “fees, cost and expenses” in their defense of Weaver Cooke. (Westfield Compl. (DE # 1) at 8-9; Zurich Ans. (DE # 34) at 3.) Westfield and Zurich move for reimbursement of these costs as of the date Penn National's and Selective's duty to defend Weaver Cooke as an additional insured was triggered, thereby giving Penn National and Selective the “primary responsibility of defending Weaver Cooke for the remainder of the Underlying Action[.]” (Westfield & Zurich Mem. Supp. Summ. J. (DE # 71) at 2.) As such, Westfield and Zurich have sufficiently alleged facts in their pleadings sufficient to confer standing upon each of them. See Steadfast Ins. Co., 217 F.Supp.3d at 911 (finding standing for an insurance company who, although not a party to the underlying contract, was “intimately intertwined with the priority of all parties' coverage obligations”).

         B. Duty to Defend

         Under North Carolina law, interpretation of an insurance policy, including the extent of the insurer's duty to defend, is a question of law. See Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374, 377 ( N.C. 1986) (“[The duty to defend] is an appropriate subject for summary judgment.”). Broader than the duty to insure, “[t]he duty to defend is generally determined by analyzing the pleadings in the underlying lawsuit.” Westfield Ins. Co. v. Nautilus Ins. Co., 154 F.Supp.3d 259, 264 (M.D. N.C. 2016) (citing Waste Mgmt. of Carolinas, Inc., 315 S.E.2d at 377). As such, the courts employ the comparison test, where “the pleadings are read side-by-side with the policy to determine whether the events as alleged are covered or excluded.” Waste Mgmt. of Carolinas, Inc., 315 S.E.2d at 378. “Allegations of facts that describe a hybrid of covered and excluded events or pleadings that disclose a mere possibility that the insured is liable . . . suffice to impose a duty to defend. Thus, an insurer must defend its insured against a lawsuit unless no allegation is “even arguably covered by the policy.” Cont'l Cas. Co. v. Amerisure Ins. Co., 886 F.3d 366, 371 (4th Cir. 2018) (internal quotation marks and citations omitted). Additionally, “facts learned from the insured and facts discoverable by reasonable investigation may also be considered.” Waste Mgmt. of Carolinas, Inc., 315 S.E.2d at 378 (citation and quotation marked omitted) (finding plaintiff's affidavits relevant to determining the defendant's duty to defend). “[A]ny doubt as to coverage must be resolved in favor of the insured.” Duke Univ. v. St. Paul Fire & Marine Ins. Co., 386 S.E.2d 762, 763-64 ( N.C. 1990) (citing Waste Mgmt. of Carolinas, Inc., 315 S.E.2d at 377).

         1. Additional Insured, Property Damage, and Occurrence

         The parties disagree whether Selective and Penn National owe a duty to defend Weaver Cooke as an additional insured. Weaver Cooke, Westfield, and Zurich contend that “Penn National and Selective must provide a defense so long as it might be possible for [p]laintiff in the Underlying Action to establish property damage caused by conduct for which Weaver Cooke is legally responsible.” (Weaver Cooke Mem. Supp. Summ. J. (DE # 76) at 13; see also Westfield & Zurich Mem. Supp. Summ. J. (DE # 71) at 3.) In response, Selective contends “Weaver Cooke was sued by [New Bern] for purely economic loss type damages[, ]” not property damage. (Selective Resp. Opp'n (DE # 91) at 2; see also Selective Resp. Opp'n (DE # 90) at 6; Selective Mem. Supp. Summ. J. (DE # 80) at 5.) Similarly, Penn National contends there is no basis for “[Weaver Cooke's] contention that [ECM's] work was responsible for ‘property damage' as defined within the applicable Penn National policy[, ]” resulting from its work on brick veneer installation. (Penn National Resp. Opp'n (DE # 84) at 10; see also Penn National Resp. Opp'n (DE # 88) at 5.)

         Under Section I of Penn National's and Selective's policies-coverage provided for bodily injury and property damage-Selective and Penn National both agree to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury' or ‘property damages' to which this insurance applies.” (Selective Policy Excerpts (DE # 71-26) Ex. 23 at 10; Penn National Policy Excerpts (DE # 71-25) Ex. 22 at 13.) They also have a “duty to defend the insured against any ‘suit' seeking those damages.” (Selective Policy Excerpts (DE # 71-26) Ex. 23 at 10; Penn National Policy Excerpts (DE # 71-25) Ex. 22 at 13.) Under section IV-definitions-the policies identically define property damage. Property damage is defined as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ...

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